The Australian Tax Office has confirmed it will perform random audits on individual taxpayers for the 2015-16 financial year. A large impetus for this activity is the estimated income tax gap due to tax evasion and misreporting, with the ATO reporting a figure in the tens of billions of dollars.
As a result of this gap, Assistant Commissioner Graham Whyte said a focus of the ATO will be to look at work-related expenses across all industries. A common theme amongst those who misreported on their tax returns is ‘double-dipping’: making work-related claims on a tax return when they have already been claimed from work.
Excessive work-related claims such as incongruous work-related car expenses or self-education expenses not directly related to a client’s current occupation will be monitored. Personal travel claimed as work travel is also in the firing line.
Luckily for accountants and tax agents there are tools available to reduce the risk of a client audit. Thomson Reuters have recently updated their Tax Assistant software to include an innovative new feature called Tax Audit Alert.
Tax Audit Alert notifies tax agents to potential ATO audit risk areas on claims for work-related expenses that are above the ATO’s average for a client’s specific occupation. The alert is also based on a client’s gender and taxable income.
In addition to reducing the risk of a client audit, this smart new feature in Tax Assistant gives accountants and tax agents an opportunity to talk to their clients before the ATO comes knocking. In doing so, it can also strengthen the trusted adviser relationship.
Take this situation for example: an accountant has a mechanical engineer client who is female with a taxable income of $75,678 and work-related car expenses (D1) of $3,167. Tax Audit Alert will alert the accountant this claim exceeds the ATO’s average (based on the client’s occupation, gender and taxable income) by 89%. This allows the accountant to have an informed discussion with their client to ensure the claims they are making are legitimate with proper receipts and documentation.
According to a report by Essential Media Communications, accountants are rated only behind doctors and engineers in terms of trust. By providing ATO data as the evidence for a discussion about work-related deductions, accountants and tax agents can have honest and frank conversations with their clients.
